ECON #1: What is GDP?

-#Economics 1: What is GDP? South Korea is considered the 4th biggest economy in Asia, trailing only China, Japan, and India in GDP (gross domestic product). But people rarely say Chinese and Indians are "richer" than South Koreans. Rather, when we take a look at the GDP per capita (GDP divided by the current population), the average Korean apparently makes more than three times the average Chinese does; roughly 15 times the average income in India. In addition, in 2017 global rankings of GDP per capita by the IMF, South Korea was 29th, only a step behind Japan--the well-known “rich” country. Also, if we look at GDP more broadly, some intriguing comparisons emerge. For example, Apple. Inc.'s current market capitalization (the total value of all a company’s shares of stock), US $1.17 trillion, is higher than Switzerland's estimated 2018 GDP. So, what is GDP really about anyway? Why do economists care about it and what does it tell us? Wikipedia defines GDP as "a monetary measure of the market value of all the fiscal goods and services produced in a specific period, often annually." And there are three major approaches to calculate it: value-added (final outputs - imports), national income (labor + capital income), and expenditure (consumers output + investors output + government output + exports - imports). Most importantly, GDP can be a great indicator of how governments spend their budget on various aspects like health care, defense, etc. (I.e. spending on defense was 15% of GDP in nation A while 25% in nation B). And it also gives great insight into the size of a government and the amount of national debt. So is having a greater GDP a good thing? Economists say that it is good, but not necessarily. Essentially, many argue that the amount of GDP does not guarantee the quality of spending. Spending US $1 billion on defense is not necessarily efficient. But, at the same time, it is still good for a government to have a bigger GDP since it can afford to spend more with a better chance of achieving something. Having something is always better than having nothing. On a side note, GDP per capita, a common indicator of how wealthy people from different countries are, also does not reflect a factor like income inequality. So, it does not mean all the people in country A are rich just because its GDP per capita is $60,000. Therefore, we should not assume that all people from countries like Sri Lanka or Nepal, countries with relatively low levels of GDP per capita, are poor, even though there are more chances that many people there on average are. So, for all these reasons, although GDP is not a perfect indicator of a country's economy, it is still working as a great indicator and important data for economists. @dylanyang0930 The Asians.org

The Asians